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When Congress passed the landmark Energy Independence and Security Act (EISA) in December 2007, the media and Capitol Hill focused heavily on the Corporate Average Fuel Efficiency (CAFE) standard. Congress increased the standard from 27.5 mpg to 35 mpg by 2020, marking the first time the CAFE average had been raised since the 1970s.

Almost entirely lost in the subsequent discussion was the fact that Section 136 of EISA created a $25 billion fund known as the Advanced Technology Vehicle Manufacturing Incentive Program (ATVM). The ATVM specified that the Department of Energy (DOE) should provide loans, loan guarantees and grants to new and existing automakers and suppliers to encourage development and speed delivery of next-generation cars – vehicles that meet higher standards for fuel efficiency and stretch technology beyond the internal combustion engine. The program aimed to provide “grants and loans to eligible automobile makers and component suppliers for projects that re-equip, expand, and establish manufacturing facilities in the U.S. to produce light-duty vehicles and components that make meaningful improvements in fuel economy performance.”

The ATVM program became a reality when funds were appropriated in late September to get the program off of the ground. Tesla Motors immediately began developing an application, proposing two advanced technology vehicle projects to be funded by DOE loans. The first project is an Advanced Battery and Powertrain Manufacturing facility that would supply batteries and components for Tesla cars and, more importantly, for other automakers. The second project would help us to finance a manufacturing facility to make our second vehicle, a five-passenger sedan known as “Model S.” We submitted our application to the DOE Nov. 16 – three days after the program became official.

Meanwhile, the macroeconomic environment deteriorated, and Detroit automakers scrambled to find a solution to quickly replenish their rapidly depleting cash reserves. October sales for nearly all large automakers plunged to near-record levels, prompting executives to consider strategically questionable mergers and even bankruptcy – moves they claimed would cost millions of jobs.

Naturally, their sights turned on Washington, seeking bailout loans from the Treasury Departments via the $700 billion Troubled Asset Relief Program (TARP). But when the White House made it clear that the TARP was off limits to the automakers, some on Capitol Hill initiated an effort to divert the $25 billion ATVM monies into a general bailout of domestic automakers -- an option that would not fund next-generation powertrain work but would instead give ailing businesses little more than a short lifeline. The pressure on Congress to pervert the intended purpose of the ATVM program will be intense when the CEOs return to Washington in the first week of December.

It would be an enormous mistake to refashion the ATVM into a bailout. The original spirit and intent of the program is critical for the nation’s economic security – and the importance of the program is even greater given the harrowing economic climate.

Earlier this month, as layoffs were mounting among the Detroit automakers, President-elect Barack Obama broadly outlined an economic recovery plan that could put 2.5 million Americans to work, many of them in “green collar” jobs, building wind turbines, installing solar panels and developing fuel-efficient cars. California is already showing that America needn’t buy into the specious argument that pits the environment vs. the economy: In October, the University of California, Berkeley, released data showing that the state’s energy-efficiency policies created nearly 1.5 million jobs from 1977 to 2007 and boosted salaries by $44.6 billion.

Since its founding in 2003, Tesla Motors has been directly addressing the pressing crises of energy security and climate change. The company is already producing the Roadster, an innovative precursor to other all-electric, zero-emission models in Tesla’s product pipeline -- de facto evidence that electric vehicle technology is here today. Tesla Motors is applying for the DOE loans in the truest spirit and intent of the program, and the company does not endorse the diversion of the ATVM resources for a bailout of any kind.

It's deplorable and inane that legislators would divert ATVM funds to bailout the misguided American motor companies when innovative companies such as Tesla Motors show such promise if only they would be supported by our federal government. What else can be done as a grass-roots supporter of the EV movement and Tesla Motors besides contacting my legislator (which I plan on doing tomorrow)? Any petitions?

Bailouts are one big moral hazard. Especially Tesla should scream about alternatives. There is world outside GM.
What would You do with 25 billion?

James Haas

3:14pm | Nov 27, 2008

Could not agree more. It is exciting time in America. We truly are the land of opportunity and it is knocking at the doors of companies like Tesla. The only question on the minds of Americans who support these efforts is "when can we invest!". Signed, "another forward thinker waiting for IPO's"

dirk

6:35pm | Nov 27, 2008

While I agree that Tesla has the right technology today, don't you think there is enough money being printed to cover both Tesla's needs and those of the big three?
Has the DOE made any commitments to Tesla yet? Last time I looked at the government's techology loan programs they were only loaning a few hundred thousand per industry. Not nearly the millions that Tesla needs nor the billions that the big three are asking for. I guess what I am saying is, if Tesla is waiting for a governement loan to commence their next model then it will be a long wait if ever. Why not do the public offering now aqnd get the funds from the people who believe in you???

Cheers,

Dirk

MaxDZ8

4:38am | Nov 28, 2008

I recognize drive cycle plays a major part in fuel efficiency however, considering 35MPG is about 14 Km/l I would say the 2020 target is shameful. I believe I could pull it out of the car I have now with some careful driving.

If they want the money, they should start shipping 35mpg "now" (although consumers should probably not buy anything less than 45-50 mpg). They created a big share of oil addiction, they just have to thank their workers for providing them this excuse.

If somebody could give the credit on a merit basis, I would expect TM alone should take at least a 40% of the cake. Hey, I guess this won't happen.

Diarmuid: Thank you, an important red flag that needs to be waved. Electric vehicles are the key to establishing a “Carbonless Energy Economy” and the ultimate hard dollar energy savings from driving them can actually pay for the needed additional electric infrastructure (http://tinyurl.com/ElectricEconomy). Without a doubt, Tesla has been the technology leader and your follow-on vehicles, and EV’s or Serial Hybrid EV’s like the Chevy Volt will: eliminate the geopolitical and economic leverage we currently give to the world’s petro-dictators, remove the ultimate cause of energy wars that we currently fund both sides of, and give future generations a fighting chance to live in a cleaner environment.

I am against “giving” any amount of money to the “little three” automakers when they are not able or willing to make serious changes to business models tied to contracts signed many years in the past. I am for seeing them move through a “planned Chapter 11” that would allow them to re-emerge on an equal footing with their foreign competitors and perhaps even re-capture the market with advanced technology vehicles like those built by Tesla. In fact, I consider such a move an opportunity for them(http://tinyurl.com/auto-bankruptcy). Assuming the “Three Amigos” from GM, Ford, and Chrysler had the courage to present such an opportunity when next summoned before congress, I would be for investing in their future; but the funds would need to come from some other source than the ATVM program—and why not the TARP since those funds are not being used for what they were originally intended any way (http://tinyurl.com/solve-it).

While I agree wholeheartedly with the premis of your argument, I'm afraid your decision to produce your little roadster offshore smacks of detroit flying to Washington, DC in private jets to plead poverty. Federal money should not be used to create jobs offshore, notwithstanding the benefits, if any, to your company to do so.

I like how Diarmuid OConnell says "moves they claimed would cost millions of jobs", which implies that it won't. The fact is it could. Outsourcing construction for a premium priced niche vehicle is much less costly to setup than trying to turn a profit on high fuel efficiency small engine cars - vehicles which need huge volumes to turn profit by comparison. Should advanced vehicle loans be used to save the auto industry - It can't be that black and white. Where do you think most of Tesla's parts come from(the non drive train ones that they make)? One of two places: American suppliers, or non-American suppliers. If American then Tesla Roadster would be affected by the failure of GM, if non American than the jobs aren't in North America and thus doesn't give back to your country.

If Tesla does make it to a 60k sedan then a more middle class friendly vehicle possibly in the 30k range (as mentioned I believe by Tesla), where are they going to get the mass manufactured parts. If the big 3 fail then a lot of major suppliers go with them. Ones that make pressing for suspensions and bushings and bolts and pipes and hoses and pumps for power steering. Car manufactures just make engines and press and paint steel into bodies, the rest of the car is made by other companies.

This is more complicated than people make it out to be. I personally think that they need to survive and need to get competitive. Do you think if Tesla was at the volume of 300000 cars a month in a low profit vehicle market it would be better off? I mean Tesla did lay off a larger percentage of its company than GM did recently due to the credit crunch. Tesla is a low volume niche maker now complaining about a market it isn't in with problems it can't understand.

James Anderson Merritt

5:09am | Nov 29, 2008

I'm 100% behind you when you go to DC or Sacramento in an attempt to get lawmakers to lower or remove barriers to entry that put alternative fuel and powertrains at a disadvantage in comparison with the ICE, the "hydrogen highway," etc. I'm behind you, though somewhat less enthusiastically, when you ask for tax breaks that favor development of EVs. But when you apply for government grants and guaranteed loans -- that's corporate welfare, and I can't endorse it.

One of the earliest stories told about Tesla Motors had to do with your business model: you would start at the high-end, making a luxury product that would not only pay for its own development, production, and support, but also provide seed capital for expansion and newer, more affordable products. That's an admirable bootstrap strategy in the best Silicon Valley tradition. Is the application for federal largess, and previously announced sweetheart deals first with New Mexico and now with California, indicative of a fatal flaw in that strategy? Is it simply impossible to build your company by bootstrapping and attracting investment capital the time-honored high-tech way? We sneer at the bloated Detroit big three for bellying up to the public trough. But whether you call something a bailout program, an "incentive fund," or even an investment in America's economic security and energy independence, the bottom line is that taxpayers who may have other plans for that money -- thousands or millions of them! -- will forced to contribute to programs they don't necessarily approve.

As I see it, the hard part of management's job is formulating and competently executing a business plan that is robust against government interference on the one hand, yet can succeed without any government assistance on the other. You obviously have to live and prosper in the environment that government creates, but I hope that nothing you are planning actually depends on government bestowing favors to Tesla or its business partners. Detroit has played the crony capitalism game for decades, earning a lot of criticism along the way. Please don't rush to join them.

Jon F. Turpin

8:53am | Nov 29, 2008

I agree, the big 3 have sunk themselves. Now they are begging for cash. I think the electric car still has a long way to go, but it's the best idea out there right now. Good luck to Tesla Motors :)

Jeff

9:32am | Nov 29, 2008

Amen!

The Big-3 had their chance to wise up back when they were handed their dignity on a tray by Japanese and European automakers by the 1974 oil embargo.

The Big-3 chose to use it's 1920s/1930s era assembly lines in the 1980s when Japanese and European plants were switch on JIT manufacturing and shutting down single-production plants. I visited plants in 1980 including BMW where *every car* they sold could be made on the same production line: 3-series, 5-series, 7-series, 8-series! Just this spring the Big-3 were claiming production re-tools would take 1-4 years per factory!

The Big-3 *were given* money to create zero-emission vehicles (a government hand-out) in the 1990s which they blew through and promptly started "mainlining" SUVs.

They had their chance. Several times over. They've proven they can't make a good opportunity work. They've proven they can't create real value to turn a bad situation around. How strikes does it take to put them out? Do we treat a Fortune 10 company like a pee-wee baseball game with "baby rules"? Have they shown America the same deference and patience? No.

To anyone would claim "but the jobs": what about the opportunity costs through wasted resources and debt to save the Big-3. We're already behind technologically; the Big-3 have shown they have held us back and continue will hold us back in the future.

Yeah, I live in Silicon Valley and I'm an entrepreneur myself but really this is the reason why old established companies that have outlived their best years must die and be replaced by the next generation. US history has shown this is the only way we can hope to stay competitive and keep our economy going.

Indeed, if Tesla were to go public, I'd buy in by quite a bit and probably re-invest quarterly.

Minna Barrett

4:21pm | Nov 29, 2008

Dear Tesla,

What can I say. It's so disappointing and so typical of the fear of global corporate interests and national car and oil interests, that innovation that could help us all is viewed as a threat by major corporations. I agree with the statement made by Dirk above in that it may not be a "willing" government program. That is, while the government may have put the money aside, allowing the truly able and innovative to have it might be another story as your technology only confirms to the big 3 and the big oil cartel(s) that a feul efficient, green car can be done and it should be; that might be a message they may still (or will always) be unwilling to listen to, despite the fact that we the people need it and, if given the opportunity, I believe would chose it, too. So, it may be necessary and wise to open the process to a public offering if it turns out there is no other way. That said, is there a way we can hlep to secure the moneys that are supposed to be available to those whar are innovating and know what and how and are willing to do it? How, about a letter writing campaign from all of us to Paulsen, Geithner, Summers, Bush, the Speaker, the Senate Majorty Leader and the President-Elect, who now seems so willing to bailout the big guys with our hard earned cash and whgo has always been pro "nuke" (a whole other bag of bones) expressing exactly what we know to be true and what we do and don't want? Even though right now, I probalbly could not afford one, I know that where you are going with Tesla technology is more right for all of us than the Escalade, Hummer and Lincoln, etc. of the BIG 3, especially if you can go to a solar grid, rechargeable plug-in. I'll hock something I own for one. You go Tesla!

g.r.r.

8:22pm | Nov 29, 2008

I think that you are partially wrong. I think that the feds SHOULD offer a bailout to the big 3. BUT, the problem is that the big 3 is and will remain badly mismanaged. Why? Because they are too big and control too much of the market.
They should be offered extra money, NOT from ATVM, and those that take it will accept being broke up.
For example,
GM should be broken in Chevy, Pontiac, Saturn, Hummer, etc. I realize that ppl will say that this will not help, but it is the exact opposite. It will help, because new management will take over each item and then they either swim or sink.
More importantly, each will compete the way that Detroit USE to compete 50 years ago and Silicon Valley use to 30 years ago, and the way that the internet somewhat does (and rocketry is again learning to compete).
In addition, they need to accept MUCH higher standards on mileage. Forget the 35. It should be 35 by 2012 and 45 by 2020. Also, a few tax incentives should be put into place. In particular, gas/diesel should have an extra .25 /gal tax added every 6 months, until fuel hits a max.
Finally, another tax incentive by removing all state taxes for pure zero emissions vehicles (at the vehicle level). That means PURE electric and pure hydrogen would qualify. This should take place until X amount of cars are on the road.

Darin Ladd

9:45pm | Nov 29, 2008

This post seems incomplete. What do you advocate your readers do to support this recent retrenchment/policy gambit? Actually, more to the point, and in support of Mr. Merritt's points above, why is a gambit even required? First, your business model is not dependent on the macroeconomic climate until you start selling a significant amount of cars. Second, your business model is not dependent on the price of gas (low or high)--at least in the short run. Third, people have postponed automobile purchases--not canceled them entirely (although it may seem like it right now). Fourth, there is money available for investment (not everyone lost money recently, some just parked it elsewhere until a good investment could be found). Finally, your competition is wounded, but not finished--they (whoever they are at the beginning of next year) will soon begin the process of commoditizing your product.
There has never been a better time to be Tesla Motors. Don't let external uncertainty cloud your vision.

Matt Thompson

10:51pm | Nov 29, 2008

Suggestion: don't throw rocks at others until you can ship something (in quantity)...

You set everyone's expectations that (shortly) we'd all be able to buy a Tesla... now it doesn't seem this is going to happen.

I'm for bailing out the Big 3 if for no other reason that it looks like you guys are flailing, so w/the right program the gov't can demand the Big 3 find a sustainable way to produce what you guys are (now) only talking about...

Just so don't you get the wrong idea - I was behind you guys completely, right up until the point it became obvious that your cost for producing your roadster was significantly more that what you were selling them for.

So basically - "shut up until you ship..."

Roy

10:15am | Nov 30, 2008

Bill Frye: Get your facts right. Tesla is building the Model S in California. What Tesla has asked for is NOT to support Roadster assembly in Europe, but for expansion in the U.S.

I agree with comments that Tesla should not depend on Government money, and should not delay the Model S waiting for it. But since the money is available, and it will go to someone at taxpayers expense, I approve of Tesla's application.

Tesla Motors is applying for the DOE loans in the truest spirit and intent of the program, and the company does not endorse the diversion of the ATVM resources for a bailout of any kind.

How about this: Tesla waits until it fulfills its early promises on the $109,000 car, i.e., that it delivers the vehicles -- ALL of them -- that do what Tesla said they were going to do. Then, in return for government representation on its board of directors, and for a commitment to make cars that the general public can afford to buy, Tesla gets a low-interest loan. Anything else is just one more well-connected special-interest pleader with a fun story to tell.

Of course, doing it the old-fashioned way ain't gonna fly with Tesla. In the meantime, let's hope the government isn't dumb enough to subsidize a company that produces $109,000 ego cars for Hollywood stars and Silicon Valley toy collectors. Citicorp, AIG, and all the rest were bad enough. Tesla, take your grubby hand out of my wallet.

Why don't you license your technology to General Motors (or Ford or Chrysler) so we all (including you-from royalties) can benefit from your hard work and you (they) can keep up with production and bail out the economy besides?

Dru Bacon

11:13pm | Nov 30, 2008

Secretary of Energy in the Obama Administration will be a pivotal appointment. Obama is not endebted to big oil and the "big" three. I hope that the $25 Billion EISA funds will be awarded to Tesla and other start up electric car companies. What is needed most is a "Manhattan" style project to develop improved batteries. US Energy research money goes to oil and gas research. That money and effort needs to be expended for better batteries and electric cars.
Studies have shown: one acre of fertile land can produce enough ethanol in one yeat to power a car 5,600 miles. That same acre can produce enough solar electricity to power a hybrid 800,000 miles.
Studies have shown that land in the US Southwest that is 100 miles on a side can produce all the power used by the US, if an efficiency of 10% is achieved. Solar Panels get 20% efficiency.
Studies have shown that the US has enough wind to power the US many times over.
History shows that successful industries do not invent the future. They are replaced by start ups. Examples: National Cash Register, Eastman Kodak, AT&T, IBM Mainframe Business, US tire makers and radial tires.....
The list is endless.
My next car will be an electric. I hope it will be a Tesla product. Good luck to the Tesla Team!!!

Earl

1:34pm | Dec 1, 2008

I think a lot of people are missing the fact that Tesla IS shipping cars today. They're up to 15 per week and increasing. I wonder how many Henry Ford was delivering after his first 4 months? How many $104,000 Corvette ZR-1's is GM building per week? If you're skeptical, Tesla is open. Anyone can walk into their Menlo Park, CA, USA showroom and see all the new cars that have arrived and see that there are different ones later. We just picked up our Roadster last week and have put over 500 miles on it already. I drove over 205 miles in one trip at 65 mph, just to prove the point. It handles exactly as you ask it to: Easy pressure on the accelerator, limousine-smooth driving; stomp hard and it responds just as aggressively. The regenerative braking is incredible. You hardly even need to use the brake in normal driving. It charges easily at home, in the garage.
This is the future and it is GREAT!
All of the stories about problems that have been surfacing recently about deliveries are way overblown. The product is great, business model is sound, they have many customers, the customers are happy, the future looks to be even brighter. what more could anyone expect from a startup company?
Go Tesla!

What climate change? The amount of CO2 (yes, an infra red affected gas) amounts to 365 ppm , like 3 hours is to a year!, this also gets lost in the other major greenhouse gas>> good old water vapor! The latter has yet to be studied.

Come on, the error was in the Government making engineering a political issue at the expense of the public...and now the very companies that they have bankrupted!
Like an addict, they are begging for more!

Sincerely,

Herb

Timo

5:37pm | Dec 1, 2008

Lets make that bailout a bit interesting: give money to big three with string attached that forces them to build only 100+mpg cars for civilian use by 2012. Otherwise company goes bankrupt. Three years should be more than enough for big three for that change. After all there isn't anything revolutionary in Roadster, it just is here *now*. I bet using Roadster-like drivetrain you could get some Corvette with exactly same performance. The big three have much more resources than Tesla if they get that bailout money.

In fact that same technology is already used by several tiny projects to convert ordinary ICE sedans to BEV:s. Tech behind Roadster is that simple. What those small projects lack is resources to design entirely new cars, and ALL big car manufacturers can do that. Japanese car makers have already realized that. There are several pure EV:s coming in next few years, and hybrids will replace pure ICE. Even rally cars are made hybrid. Pure ICE is simply obsolete.

Car mass isn't that big problem for EV, it just slows acceleration down. What affects are rolling resistance (which does increase with mass, but not linearly) and air resistance (which increases with size, but depends of car Cd even more than size). I bet you could make 100+mpg "Hummer" with just minor changes if you make it BEV or serial hybrid instead of ICE.

In fact I believe best performance and efficiency change would be gained from really big cars like some 18-wheelers instead of small sportcars. Problem with those is limited range. They would need charging stations.

Timo

5:58pm | Dec 1, 2008

Earl, you said that you did drive 205 miles at 65mph. Was that with or without roof? I wonder how much car efficiency is affected by the fact that it is roadster, and not usual hardtop sportcar. CdA figures I have seen for Roadster are (surprisingly) not very good and I wonder if those measures have been made without roof which would explain it.

Can you make some unofficial comparison how much roof affects the range in 65mph speed?

Josh P

6:01pm | Dec 1, 2008

I wonder if Earl works for Tesla? That comment almost sounds scripted! Seriously though, hurry up the cakes with the Model S! I want one TODAY!

bruce bundock

7:49am | Dec 2, 2008

I heard with interest the report on Tesla Motors, on National Public Radio. A comment arose that if Tesla could appropriate a portion
of the money the big three auto makers are asking from Washington (meaning us, the taxpayers) Tesla's dreams and outcomes
could become a reality in a much shorter time frame. I am respectfully submitting an invitation to visit a website called "Project
Renaissance" founded by Win Wenger, Ph.D. The website contains a host of creative problem solving techniques for application in any occupational domain. I would like to see your auto become commonplace at a cost more Americans can afford. Before that happens, a number of problems need to be solved. I think a visit to the Project Renaissance site will deepen your toolbox.
regards,
Bruce Bundock

Earl

1:33pm | Dec 2, 2008

Timo,
My 205 mile trip was with the soft top on.
More details:
- hilly terrain
- headlights on (night drive)
- ambient temperature approximately 50F
- charging mode: Range Mode
In due time, I'll get around to checking out the top-off and hard-top performance as well. It takes quite a while to drive around aimlessly for 205 miles at 65 mph.
Don't forget that the EPA test only averages 48.3 mph (http://www.fueleconomy.gov/FEG/fe_test_schedules.shtml) so it really isn't realistic freeway driving. This real-world 205 freeway miles per charge, however, is more than sufficient for normal life.
Josh P,
Sorry if I sound like a Tesla mouthpiece. As a Roadster owner, I'm probably a little biased but I do try to be honest in what I say. We had to believe in them (after a but of due dilligence) or we wouldn't have sunk a lot of money (we're just hard working engineers so it's a lot of money) into them 2 years before they said they would get us our car. The good news is that they DID deliver our car and it IS a fine piece of engineering. I thought that the readers of this forum might appreciate some candid feedback from Roadster owners.
Let's all push for Tesla to get profitable with the Roadster so they can move on to the Model S and the ultimate BlueStar.

Timo

1:57pm | Dec 2, 2008

Bruce Bundock:

You said "I would like to see your auto become commonplace at a cost more Americans can afford. Before that happens, a number of problems need to be solved."

There aren't any actual problems in a way of affordable EV, only the greed of big oil, lack of development in battery tech and lack of charging station network. Those all will solve themselves with time and solutions (except for big oil) are already visible. What this accomplishment requires is just work.

The costly bit of the EV is the battery pack. We need cheaper and better batteries. With silicon nanowire batteries we can get that. This tech takes some time to mature, so that next five to ten years we don't have cheap (or at least that good) techs available.

Secondly we need charging stations. Tech for those exists, so it only requires someone or something to make it reality. Problem in that has been the classical chicken and egg -problem. You don't have charging stations, because there is nothing to charge, and you don't have EV:s because without charging stations EV range has been too small. That has now changed. We have that "chicken" now.

Roadster is selling now and working beautifully. Next generation of Tesla cars will have that same tech in them and with mass-production and some tiny tweaks here and there he cost goes down. What Tesla can't do by themselves is cheap batteries. At least not now. So we only need to wait for tech to develop better batteries. Then everything will solve itself nicely by forces much greater than any single company or country: technological development and laws of supply and demand.

Change is here now, and it is inevitable. It really doesn't require Tesla to be successful, if Tesla fails then someone else success. Tesla failure could only slow change a tiny bit, it wouldn't stop it. And I don't think Tesla fails now. It is ahead of all of its competitors by year or two. It seems that only Japanese car companies have realized what the future requires and are acting accordingly. Those can be quite tough to compete, but no worry there is enough room for more than just a few car companies into the world.

There is a very big business around the oil, so the governement of your country will keep helping dead factories like GM. I'm sorry...

Dr.Edson Andre' Johnson D.D.ULC

9:01pm | Dec 2, 2008

Hopefully The Tesla Roadster will whiz on through all this economic turmoil! WE need and have in the Tesla Roadster a Good VIABLE E>V>!

James Anderson Merritt

5:42pm | Dec 5, 2008

I'd just like to point out that criticisms of Detroit -- while valid in many points, I agree -- seem to assume that the big automakers are naturally bloated, resistant to change and innovation, can't exploit a good opportunity, etc., when I think the real situation is more nuanced than that. Yes, they are big, but they are big in order to allow for first national, and later global participation and competition. As is often said, big ships are hard to steer and slow to respond. That's the nature of the beast. But being resistant to change and innovation is also strongly influenced by the regulatory maze faced by a market participant. As has been amply documented in these blog postings, the process of getting approval for a car to be "street legal" -- just in the US, not to mention other countries -- is an expensive, long-term task. Tesla made it, but (as Musk surely knows) at great cost. Other EV companies dodge the onerous auto rules by creating "neighborhood EVs," vehicles that seem like cars but are classified as 3-wheeled motorcycles, etc. A serious auto manufacturer that produces and ships in volume must also be big to defend against the inevitable lawsuits from Nader and consumer advocates like him. (Whether or not you believe that the manufacturer is at fault, it is still the case that a protracted lawsuit can take down a poorly defended defendant even if the plaintiff LOSES.) Finally, although the size of the automakers was a big motivation for the push for union representation of the labor force, it is also true that the automakers had to be big in order to deal effectively with the unions.

What I am saying is that a lot of the criticisms of the automobile industry stem from its perfectly reasonable attempts to adapt to the distorted market environment in which it must operate, an environment that has proven very hostile to Tesla and other alternative vehicle enterprises as well. If the market environment were different, it is possible that consolidation of the auto industry into the megaliths that we know today might not have happened, because more "smaller-fry" competition could have emerged and persisted, acting in the aggregate as a force that would keep the industry roiling; also, because companies wouldn't have needed to become so big to survive and prosper in the first place.

I'm not trying to excuse the auto companies, mind you. They have clearly sown and now they are reaping (or being reaped, unless a bailout comes through!). But as much as we want to blame them for various offenses -- or just for being big, dumb, and greedy -- they are also products of a regulatory and economic environment that isn't entirely of their own making. We need to recognize the environmental factors that might be worth changing to ensure that not just the big 3, but also Tesla and all of the alternative manufacturers, have a fair shot at surviving and prospering in the 21st century. My own preference is for there to be more competition, rather than less. The bailout and protective legislation that is being proposed seem to go in the wrong direction to encourage more competition.

vawlkus

6:19pm | Dec 5, 2008

I think there's a distinction here that people are missing:

The Big 3 are asking for money to stay in business (or so they claim).

Tesla is applying for grants from funding programs that were set aside for technological innovations, so that they can accelerate their rate of progress.

Tesla doesn't need money to stay afloat, they are asking for money to bring their products to market faster. They can get there on their own, unlike the Big 3, it'll just take a little longer.

James Anderson Merritt

6:30pm | Dec 5, 2008

I forgot to say in my comment just above, that Detroit's lack of innovation is in large part made necessary by the regulatory situation. It is simply easier and less expensive (thus, more potentially profitable) to keep putting out designs and features that have already cleared the regulatory hurdles, as long as the public will buy them. So on the one hand, the big corporation is pressured by stockholders to bolster the bottom line, making them take the path of least resistance (aka "tried and true designs/technology") whenever possible, while on the other hand, they are usually the only ones with resources enough to actually run the regulatory gauntlet whenever they do decide to innovate. Occasionally a company like DeLorean, Tesla, etc., take a run at the high wall, and now and then, someone makes it over.

By making it so expensive to innovate (and by closing the door to smaller-fry competition that would force the big guys to innovate or die in a truly free market), the government has set up a situation where legally mandated "innovations" are made, reluctantly, while marginal innovations that might lead to continuous improvement are less attractive to make, because of the approval-cost they entail. Talk about your perverse incentives. Much of the growth in the truck and van sectors -- especially light-trucks -- can be laid at the feet of regulation on "automobiles." Detroit "innovated" by creating new classes of vehicles that weren't as strictly regulated as conventional passenger cars, much as the EV guys today are making use of the 3-wheeled motorcycle classification. Over-regulation literally has literally chased established types of cars out of the market. Government is thus apparently a potent impetus for "innovation," but not in the ways that we might like. Nevertheless, they take credit for forcing Detroit to innovate when the "free market" fails. Pretty much the opposite seems true, though.

I recall, around 1979, a startup company created uselessly small and inadequate product according to market surveys in a segment already served by major players under competitive pressure.

The current automotive environment smells like a Seagate opportunity to me.

M. Erickson

7:49pm | Jan 27, 2009

I agree that your vehicle is innovative, but you are marketing it as a high end sports car. The average American cannot afford anyway. So I ask the question, why you should get low interest loans from the government to line your pockets with lots of cash at the taxpayer’s expense. As I see it your just another part of the problem not part of the solution. Oh and by the way I didn't buy off on the bailout either, Banks or Autos. What you should be doing is striking a deal with one of the big three and utilizing their production knowledge and capacity to lower your costs of producing the vehicles, thereby increasing everyone’s revenue. You could almost vary the model a little for each manufacturer and utilize all three of them. Bring the car in under 25-30k. They would sell like hotcakes on a Sunday morning buffet. Hence everyone is happy and now your technology is really taking a bite out of our fossil fuel dependency. If we replaced all the commuters autos with your auto technology (me being one of them) our pollution would lower considerably. We could tell the Sandbox to find another customer and keep money here in America. The big three already received money we should put it to good use by re-tooling for your vehicle. You would even be able to extend the version to make a four door model for families. The possibilities are unlimited. As I see it (Technology is great but if hardly anyone can afford it especially in these times when people are losing their jobs, homes etc...) I believe the volume of vehicles you could sell would offset the difference in price. Ask yourself if you sell 500 vehicles how much would you make compared to say 250K vehicles or more. Don't get me wrong on this. I'm all for free enterprise and people making money. The problem we have today is the whole country is in the toilet and it will take the whole country to work together to pull us out. If that means the stockholders need to take less and the CEO's and Exec's (upper management) need to tone down their bonuses and benefit packages then so be it. Let’s face it the worker is the one that makes the money for the company anyway, without the worker the company would cease to exist. We also need to keep our work here and not send it across our borders. Government also needs to step up to the plate and ease the regulations or rewrite them and make it easier for the technology to be distributed. We have way too much beaurocratic red tape. Using common sense solving common problems.

Word. The majority of American manufacturers have demonstrated that they're simply making cars that few people are interested in buying. While Tesla's cars are certainly more expensive that almost anything on the road, at least they're proving that they're devoted to innovative technology, and are poised to achieve success in the electric car field faster than the huge conglomerates. Dependability and efficiency are clearly a problem for many American car makers, but rewarding that behavior certainly isn't the way to making them change.

M²

9:43am | Jan 4, 2010

It seems that a lot of emphasis in this blog has been placed on the prohibitive cost of the Tesla product and the associated marketing choices aimed at the sports car enthusiast. I would submit that this was a very wise "foot in the door" that markets to consumers who may not be as severly impacted by the national recession. All indications are that upon establishing this "foothold" this company intends to expand their production line towards a larger market and share the technology and lessons learned with other affiliates to boot. Some how, some way, my next vehicle purchase will be through this company so I can finally ditch the gas stations and the dipstick. That is a personal choice and if I can be a bit greener in the process then hallelujah!

Josh

9:40pm | Feb 26, 2010

Wait. You guys produce cars for 'not-the-average-joe' who can never afford them and you want tax money to fund your business to make more cars that can only be afforded by the wealthy?

All the begging for money should be stopped by all sides. This is business. Do your business without the help of people who would rather not support it. Why on earth do you think Tax dollars should support your business? You have no right to the money, and neither does Detroit.